Popular Science in the Currency Circle: An article introducing what a contract means

Contract is a kind of financial derivative that allows traders to bet on the future price of assets. Types include perpetual contracts and delivery contracts. Contract trading allows leveraged trading, long and short selling, and flexible trading, but it also involves high volatility, leverage risk, and liquidation risk. Contract trading is suitable for investors with risk tolerance, trading experience and in-depth understanding of the cryptocurrency market.

What is the contract?

In the currency circle, "contract" refers to a type of financial derivative that allows traders to bet on the future price of the asset or hedge risks without actually owning the underlying asset.

Types of Contracts

• Perpetual Contract: A contract with no expiry date that allows traders to hold positions indefinitely.
• Delivery Contract: A contract with a specific expiration date, at which time it will be settled into the underlying asset, such as Bitcoin or Ethereum.

Mechanism of Contract Trading

• Leveraged Trading: Contract trading usually offers high leverage, allowing traders to make larger trades with smaller principals.
• Long vs. Short: Traders can trade by going “long” on the contract (betting on the price going up) or “shorting” on the contract (betting on the price falling).
• Closing: Traders can close a position by doing the opposite of the initial transaction.

Advantages of Contracts

• High Return Potential: Leveraged trading magnifies gains, but at the same time magnifies losses.
• Hedging Risk: Traders can use contracts to hedge the risk of asset price fluctuations in the spot market.
• Flexible Trading: Contract trading allows traders to go long or short without being restricted by the spot market.

Risks of contracts

• High volatility: Contract transactions are affected by sharp fluctuations in the price of the underlying asset and can easily lead to losses.
• Leverage risk: Leverage trading amplifies losses, and traders may lose all principal.
• Risk of liquidation: When the value of the contract position is lower than the required margin, traders may be liquidated, that is, liquidation.

Suitable for contract trading

• Investors with risk tolerance: Contract trading is high-risk and suitable for investors with strong risk tolerance.
• Traders with trading experience: Contract trading requires certain trading experience and technical analysis capabilities.
• Traders with an in-depth understanding of the cryptocurrency market: Contract trading requires an in-depth understanding of the price movements of the underlying assets and related market dynamics.

The above is the detailed content of Popular Science in the Currency Circle: An article introducing what a contract means. For more information, please follow other related articles on the PHP Chinese website!